1301 Second Avenue tel 206-505-7877 www.russell.com

Seattle, WA 98101 fax 206-505-3495

toll-free 800-426-7969

September 24, 2015

Via e-mail to e-OED@DOL.gov

Mr. John J. Canary, Director 

Office of Regulations and Interpretations

Employee Benefits Security Administration

Attn: Conflict of Interest Rule, Room N-5655

U.S. Department of Labor

200 Constitution Avenue, NW

Washington, DC 20210

Re: Comments on Proposed Conflict of Interest Rule and Related Proposals 

(“Proposals”) [RIN 1210-AB32]

Dear Mr. Canary,

Thank you for the opportunity to participate in the public hearing on August 12, 2015

(Panel 16) to provide input on the U.S. Department of Labor’s (the “Department”) Proposals. 1 

The purpose of this letter is to provide additional feedback primarily based on requests made or 

questions posed by members of the Department during my testimony. We hope that our 

testimony and these supplemental comments are helpful to you as you continue your work on 

this important rulemaking. 

1. Investment Advice: As I mentioned in my testimony on August 12 (Panel 16), 

one of the primary objectives must be to help individuals save and invest towards a better, 

more secure retirement. Advisors play a critical role in helping individuals think about and 

prioritize their long-term financial needs over conflicting, short-term consumptive demands. 

Establishing a relationship with an advisor is often a key first step in retirement planning that is 

of tremendous individual and societal benefit. In this respect, the Department’s proposal goes 

 

1

For a copy of the written testimony, please see http://www.dol.gov/ebsa/pdf/1210-AB32-2-

WrittenTestimony20.pdf. 
page 2

too far when it characterizes communications during the selling process as fiduciary investment 

advice. Such an expansion will have a material adverse effect in that it will significantly reduce 

a service provider’s willingness to offer its services to new accounts. This will reduce the 

propensity of individuals to establish relationships with advisors which will undermine the 

overall objective the Department seeks to advance. In that way, the Proposal will discourage

advisors from engaging in practices that lead to the establishment of a client relationship and, 

once that relationship has been established, the individual’s receipt of beneficial retirement 

planning based upon fiduciary advice. 

During my testimony, members of the Department asked for specific recommendations 

as to how the Department should consider defining “advice” in this context. We strongly 

recommend that the final regulation exclude all communications made prior to the 

formalization of a client relationship (e.g., the opening of an account, deposit of funds, fiduciary 

status acknowledged, etc.) from the definition of investment advice for purposes of 

determining whether the advice is to be regulated under a fiduciary standard. To the extent 

the Department is concerned about unsophisticated clients (see items 2 and 3 below) 

mistakenly believing that such communications are investment advice, the Department could 

incorporate a simple, straightforward condition to qualify for this exclusion (e.g., the delivery 

to the prospective client of a written statement in plain-English that a fiduciary relationship 

does not exist prior to the formalization of a relationship and, as such, no communication 

provided to the prospective client prior to the opening of an account constitutes investment 

advice). Furthermore, to the extent that the Department is concerned that there will be 

instances of advice being given prior to an account opening and which, but for the account not 

being opened prior to that advice, would be the type of advice the Department seeks to 

regulate, we believe that the “cost” of that accommodation is easily more than offset by the 

benefits noted above from increased market certainty and decreased provider reluctance. 

2. Large Plans: In my testimony I also stated that we believe that the existing 

definition of investment advice has worked for the past 40 years in a satisfactory manner in the 
page 3

context of large, highly sophisticated plans; and, as a result, that the new rule should not be 

extended to such plans. Such an extension would, in many situations, create a significant level 

of uncertainty as to whether a service provider is rendering fiduciary investment advice and 

would unnecessarily increase administrative costs and burdens without providing offsetting 

benefits or needed protections to such plans. 

During my testimony, the Department panel asked several question about the specifics 

of how we recommend that the Department implement this in its rulemaking. Analogous to 

what it did in its Section 408(b)(2) regulation, the Department should limit the new rule to 

“covered plans” which, for this purpose, should be defined, at a maximum, to be (i) individual 

retirement accounts and annuities, (ii) Section 401(a) tax-qualified plans that are not subject to 

Part 4 of Subtitle B of Title I of ERISA (e.g., Keogh plans), (iii) employee benefit plans that are 

subject to Part 4 of Subtitle B of Title I of ERISA but that have aggregate plan assets with a fair 

market value of less than $50 million2 at the time of the communication, and (iv) in the case of 

communications with individual plan participants, participant-directed accounts in employee 

benefit plans that are subject to Part 4 of Subtitle B of Title I of ERISA regardless of plan size.

3. Sophisticated Investors: During my testimony, I also recommended that, in 

addition to the exclusion of large, highly sophisticated plans discussed in item 2 above (i.e., all 

plans that are not “covered plans,” as that term is defined in item 2 above), sophisticated

covered plans as well as sophisticated individuals (both IRA owners and individual participants 

in participant-directed or one person plans) should be allowed to opt out of the new definition 

in which event the existing definition would apply. 

The Department members asked in my panel session for criteria it could use in 

rulemaking both as to who would be deemed sophisticated and the extent to which an investor 

meeting such criteria would be treated under the proposed rule. In response to that inquiry,

 

2 This dollar amount is consistent with the size standard utilized by the Department in identifying large, highly 

sophisticated plans in a number of individual and class prohibited transaction exemptions that have been granted 

by the Department over the years. See, e.g., PTE 2002-12.
page 4

the Department should utilize the standard of financial and investment sophistication (the 

“accredited investor” standard) long utilized by the U.S. Securities & Exchange Commission and 

well-recognized in the investment industry. If necessary, the Department could obtain 

additional comfort with respect to such opt-outs by requiring that the sophisticated investor’s 

opt-out be in writing and include both a representation that the client is an accredited investor 

(upon which the service provider would be entitled to rely) and an acknowledgement by the 

sophisticated covered plan or individual that communications from the service provider cannot 

be relied upon as fiduciary investment advice unless they fall within the existing definition of 

investment advice. 

These suggestions are a few of the primary concerns we hope that the Department will 

consider in its efforts to finalize a new rule. Thank you again for your thoughtful consideration 

of our comments. If you have any questions after today, please feel free to contact me.

Sincerely,

Jean-David Larson

Director, Regulatory & Strategic Initiatives 

jdlarson@russell.com